It was 2011 when I learned first-hand how reluctant the wealth management industry can be to embrace innovation. 

I was working at a retail bank in London on the strategy and M&A team. After the U.K. payment protection insurance (PPI) scandal, which involved the mis-selling of financial products to retail customers, the bank wanted to develop an automated planning and investment solution that would reduce regulatory risk by standardizing operations.

I began researching the market, and quickly discovered a small number of fintech startups dubbed robo advisors. Betterment was already in operation, along with a couple of other robo advisors in the United States and one in the U.K. I was excited by what I saw, but the firm’s leadership was clear — it wasn’t interested in pushing the innovation envelope. We were to deliver something safe and low-risk, even if unsexy.

The firm wanted to play it safe for good reason, given the PPI scandal. But even without PPI, risk-aversion is common among traditional companies; they are generally reluctant to embrace innovation. Today, more than four years later, robo advice hasn’t yet taken a firm hold in traditional wealth management, and some have pointed to robo advisors’ inabilities to revolutionize the market.

But a focus on robo advisors obscures the more powerful forces at work: changing client demands and accelerating demographic shifts. Both are beginning to force fundamental change in wealth management.

Accenture calls this emerging investor class "Generation D," a mix of millennials, Gen X'ers and Baby Boomers that account for $27 trillion in assets. "For these always-connected consumers, technology — online, mobile, and social — is deeply woven into the fabric of their lives as they strive to create, maintain and pass along wealth," the report notes.

Wealth managers don’t have a choice of whether or not to innovate. Investors want and will eventually come to expect it. The future won’t be determined by robo-advisors, or even traditional wealth managers, but by the clients themselves.

ROBOS OF THE '90s

This isn’t the first time the client has driven change. More than two decades ago, the industry’s technical capabilities — as well as client demands — evolved, and the industry was forced to adapt to a new way of doing business.

Long before online brokerages emerged, investors had to call their stockbrokers on the phone to place trades — a process with high costs and limited transparency. Access to the market was fairly limited except for high-net-worth investors.

Then, in the mid-1990s, online brokerages began offering retail investors direct access to investing services through online platforms.

Over a short period of rapid innovation, investing in the markets was democratized for an entire segment of independent, and previously underserved, investors.

It wasn’t the rise of online brokerages alone that pushed the industry to change; strong pent-up demand from retail investors pulled the industry toward wide adoption of online innovations.

WEALTH MANAGEMENT'S FUTURE

The same is happening in wealth management today, albeit more slowly.

In spite of market changes driven by online brokerages, wealth managers’ businesses haven’t changed much over the last 15 years. Most wealth managers still rely on a customized, face-to-face business model based on relationships.

While new technologies have had an incremental impact on their practices, they haven’t changed their core business models. And most advisors think it will stay that way.

Believe it or not, 58% of advisors today still think their businesses will look the same in 2025. Wayne Withrow, head of the SEI’s Advisor Network, explained that advisors believe financial planning is too complicated for a robo-advisor and will be even a decade from now.

Perceptions like this result from a focus on robo advisors’ current capabilities only, and the changes they’re pushing the industry slowly to adopt.

They overlook the same evolution of client demands that forced the industry to adapt to online brokerage services. Changing attitudes toward technology, a massive intergenerational transfer of wealth, and an explosion in web-based technology are completely reshaping client expectations.

Many investors today are beginning to demand a new model of wealth management.

They want on-demand delivery of information through intuitive, mobile and Web-based experiences. They want comprehensive, transparent advice supported by sophisticated, real-time investment management. They want meaningful relationships with their advisors, and they expect technology to make those relationships deeper and easier.

Today, those sound like the unrealistic expectations of millennials, but soon, they will be the basic requirements for everyone.

In the new model of wealth management, relationships will still matter, and they will be more meaningful. With the efficiency of automated investment management and streamlined financial planning, advisors will be more available for their clients, helping them pursue client happiness, efficiently.

Only time will tell exactly what tomorrow holds for today’s advisors. But one thing is clear — the future won’t be determined by them or by robo advisors alone, it will be determined entirely by clients. We’re just left to keep up.

Tom Kimberly is the general manager at Betterment Institutional, where he leads the company's efforts to become the leading digital-first institutional custodian.

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